Brown and the Banks

[Monkeytrousers]

www.thisismoney.co.uk/news/article.html?in_article_id=453203&in_page_id=2

I know there wil be a chorus of cynical voices echoing Tory grumbles (I have been told by an insider that the Tories are despeeratley praying for disaster in the economy - our economy - their economy - just so they can play the 'I told you so' card) of unfair use of taxpayer money, which completley ignores the payoff at the end if this works. This move will radicalise the banking system, and for the better.

I think this plan is a stroke of genius. I am in awe of GB's balls. I really hope it works and am almost sorry it's taken a global recession to do this, as it needed doing anyway.

As regards 1, cestlavie:

Retail investors were left badly exposed regardless of whether
Lehmans had any direct savers.

I take your point that the regulatory powers did not see that
which does raise serious questions about their ability to do their job.

When you say 'by the time..approaching' it sounds like Merrill's sale happened much later
than the Lehman collapse. It didn't - it happened that same weekend.

BBC Global Credit Crunch timeline:
'15 September

After days of searching frantically for a buyer, Lehman Brothers files for Chapter 11 bankruptcy protection, becoming the first major bank to collapse since the start of the credit crisis.

Former Federal Reserve chief Alan Greenspan dubs the situation as "probably a once in a century type of event" and warns that other major firms will also go bust.

Meanwhile, another US bank Merrill Lynch, also stung by the credit crunch, agrees to be taken over by Bank of America for $50bn.'

That is true, cestlavie - it's not quite a Ponzi scheme.
It is indeed legal for starters.

What is similar is that there were people
who ran the schemes, who supposedly knew
the mechanics including the risks
and who were extremely handsomely rewarded for it.

It turns out that those people got it wrong, badly wrong.

They ought to pay.
Instead we are paying.

It's simple enough.

You are wasting your breath Daddyj because these two have no doubt done very well for themselves directly or indirectly at what is going to be a massive cost to the tax payer, the fact that they don't even consider the government money to belong to the tax payers shows how detached from the real implications one of them at least is.
Justifying their actions now is exactly what I would expect, the truth is they couldn't care less and why should they, it GB who the anger should be directed at really, the buck stops there.

Really OHBollox? They must be an incredibly vocal minority then, these people who stayed out of debt, refused large mortages, ignored pension providers offering the best rates and saved only in (low interest naturally) bank accounts.

According to Credit Action, in the UK:

• average household debt is 9,600

• there are 73 million credit cards in issue, more than the actual population and an average of 5,900 on each of them

• there are 181 million credit, debit and charge cards in issue; about three for every man, woman and child

• 5 million people were rejected for loans and credit applications in 2007

• 1/3 of people under thirty have no savings at all and 50% had debts of upto 10,000 - 20% had debts over 10,000

• the amount of money people set aside for saving (for a rainy day) as a proportion of income has fallen every month since early 2005

(I could go on but you get the picture). At the same time, if you care to visit the Office of National Statistics, expenditure on recreation, holidays and travel, eating out and leisure and entertainment is not only at the highest level since records began, but at the highest level as a proportion of income since records began.

So this must be one vocal minority you've found there...

You have heard the saying lies, damn lies and statistics have you ?
I can give you the website address if you like, there are over 20,000 members with steam coming out of their ears at the moment.

Gosh, OHBollox, you mean that there is a website where people are feeling upset and venting about the current situation? That must give a very accurate and thoughtful reflection of the situation... If you don't mind, I think Credit Action, as a debt charity, might be more useful as a source of information.

And just to give some background to your over-fevered imagination - I have little or no interest in this from a personal finance perspective (other than by virtue of having a mortgage, pension and some savings). I do hate though, the economic illiteracy and name-calling that attempts to pass for intelligent explanation or thought on any subject including this - if you are interested, do feel free to read up on it rather than just flinging out random ideas.

Seems to me 'tis always the last refuge of the desperate to accuse people of a personal bias...

If we take your credit card stats then some poor sod has 14 of them and our share of the 9,000 debt.

How would I take those credit card statistics and make that happen?

I haven't read the whole thread but whoever said mutual building societies are not covered by the financial services compensation scheme is plain wrong. It's the sort of duff information that can cause people real stress and worry.

There is a list of current licensees here (among them mutual building societies

"If you fuck the whole world over to enrich yourself
don't be surprised if the world reacts badly."

Who is 'you'? Clearly in OHB's mind, that would include cest and myself because we do not support glassing heads of partially nationalised banks - but let's put that aside for now.

Apart from the Madoff case of clearcut fraud, a lot of bankers did not fully appreciate the risks in what they were selling. Neither did a lot of sophisticated investors.

Banks did what they did for perfectly legitimate reasons - managing their balance sheets and capital adequacy ratios (hence securitising tranches of mortgages), spreading their risk (through issuing and purchasing credit derivatives). Investors were relying on credit ratings without fully appreciating that the credit ratings agencies were not taking all risks into account in their headline rating.

There are also unsafe lending practices by banks such as self-certification and other sub-prime loans which no one is forcing consumers to take but they did. Coupled with the practice of banks to then sell off these sub-prime loans in bulk meant that the banks that did the lending did not take on the risk of those loans defaulting. Which in time led to more and more risk-taking by the banks.

If you fit the pieces together, coupled with the herd mentality and safety in numbers, it is crazy in hindsight to not realise the risk of a bubble economy. But you know what they say about hindsight ...

I am all for improving the regulatory environment and bringing errant bankers to book.

But I don't think individually most bankers were callously rubbing their hands in glee at the thought of enriching themselves and leaving the man-in-the-street to carry the can. There are few bogeymen in this of the Madoff variety, that the FSA will be able to seriously fault, fewer than you would think.

The investment bankers who earned fees out of doing deals would have got lawyers and accountants to bless their transactions and sprinkle holy water from top to bottom. Nothing in what they did was intentionally illegal. They like to keep their noses clean.

In hindsight, it was all a house of cards. But people did not fully appreciate it at the time it was built. Regulation will get tighter no doubt.

Blueshoes, I didn't suggest glassing anyone. Sorry that the facts get in the way of a good story ... again.

Absolutely, glassing comes from daddyJ, the originator of the quote.

We are in complete agreement when you say, the facts get in the way of a good story or, shall I say, rant.

I wouldn't be surprised if cestlavie and blueshoes have "done very well for themselves". It is only normal that those of us who have a better understanding of the financial world succeed financially.

Glassing came from me, blueshoes - a proper illustration of emotive language!

Sorry to be nitpicky, cestlavie,
but you went down that last refuge first
('many of those who benefited...
are those shouting loudest about how unfair it is now')
which provoked OHB's response.

I agree we should step back from emotive language - my apologies for proposing violence -
and trying to second-guess each other's motives.

I've said this on several similar banker witch-hunt threads, but here it goes:

Sub-prime crisis was the result of inadequate regulation, not fraud. Therefore it is irrational to expect bankers to "pay" because they have done nothing illegal. The fault lies with governments.

The problem stems from Clinton's deregulation of derivatives market back in 1999, a change pushed through by a Republican congressman called Phil Gramm who later on quit Congress and joined UBS as lobbyist.

What resulted was a world where no central exchange or authority existed to ensure standards. Great free market when all went well. Mayhem when just one player failed.

Interesting Cote.

Have you read this book?

actually you can read it here

MT - Life is too short to read a book on Clinton, imho.

blueshoes, I am happy to agree that bankers
are by and large decent people who never meant any harm.

What is equally clear is that they created products that were harmful, 'toxic'.
They created products that were not fit for purpose.
They designed them and sold them enthusiastically.

It was not Clinton wot made them do it,
it was not the Chinese or poor black people or the Great British Public -
it is the bankers who are responsible for the existence of these products.

They proudly called it Financial Engineering.
Now their financial products are blowing up in their faces.
Actually..in our faces.

If companies can be prosecuted for faulty products that harm people
then those laws should apply to the financial industry, too.

"Financial products" are a very broad group, only a teensy part of which (credit derivatives) have blown up.

Even those were entirely "fit for purpose". The purpose being transfer of risk from one party to another, for a price.

Problems started when some products got too complicated for most investors to understand, especially with no regulator in place.

Products didn't just become complicated,
someone made them more complicated.

And that teensy part is apparently threatening the very foundations of our economy.

"If companies can be prosecuted for faulty products that harm people then those laws should apply to the financial industry, too."

Except that these companies sold products that were within government standards of the time, and therefore are not liable for any injury caused by their use.

If regulations set the minimum width of a door as 50 cm, architect wouldn't be criminally liable if you couldn't pass through the door.

I've read your posts before DaddyJ and sincerely think you are a bright, reasonable person. So why can't you understand this?

And yet designing complicated financial products is not a crime.

Cote - there's an argument that if you fuck up, you should put it right/take responsibility even if your fuck-up is not actually illegal.

Bankers took the vast rewards when they thought there were being jolly clever designing and trading in these high complex financial instruments - there's a good case for saying they should take the consequences now it's turned out they weren't so clever after all.

they were being jolly clever. Dunno what's happened to my posting recently but that thread on the menopause destroying brain cells has got me worried! (Shouldn't be menopausal yet but brain is definitely suffering...)